Quantifying some benefits of price stability

Quarterly Bulletin 1997 Q3
Published on 01 September 1997

By Hasan Bakhshi, Andrew G Haldane and Neal Hatch of the Bank’s Monetary Analysis Divisions.

This article focuses in particular on tax distortions under an imperfectly indexed tax system and distortions to money demand. In the United States, a similar study found that lowering inflation by 2 percentage points could generate welfare benefits of as much as 1% of GDP per year forever. In the United Kingdom, the benefits are found to be smaller but still substantial, at 0.2% of GDP per year.

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